UPDATE 1-Argentina to deposit Par coupon payment Tuesday -source

Redacción de Reuters

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BUENOS AIRES, Sept 29 (Reuters) - Argentina will deposit the next interest payment due on its restructured debt with a domestic bank on Tuesday, a source at the central bank said, defying a U.S. court that blocked such payments until the country compensated U.S. hedge funds suing over unpaid bonds.

The country fell into default again in July after the U.S. judge overseeing its decade-long court battle with the funds - known as “holdouts” - froze a June coupon payment on Argentine foreign law bonds once it reached a U.S. intermediary bank.

Tuesday’s payment of at least $200 million will instead be deposited at local state-run Banco de la Nacion Fideicomiso to keep the money beyond the reach of District Judge Thomas Griesa.

“The deposit will be made tomorrow, which is the date the coupon payment is due,” said the source at the central bank.

Latin America’s No. 3 economy has enacted legislation to skirt Griesa’s rulings barring it from servicing debt restructured after its record default on $100 billion in 2002 until it settles with the holdouts who spurned the bond swaps.

President Cristina Fernandez, who calls the holdout hedge funds “vultures,” has removed Bank of New York Mellon Corp as trustee, and offered to swap foreign law bonds for notes governed by local law.

The news that Argentina would make the deposit on Tuesday came as Griesa held the country in contempt for violating his rulings. (Reporting by Jorge Otaola; Writing by Richard Lough; Editing by Chizu Nomiyama and Andre Grenon)